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Healthcare in Crisis – What Can Pharma Do?

Healthcare systems continue to struggle to cope with the demands of the ageing population along with advances in medicine that are costing more, even if this has been offset to some extent by the demise of patented blockbuster drugs. This raises questions about what pharmaceutical companies should be doing if they want to ensure that their new drugs are not seen as a major reason for spiralling healthcare costs.

It’s worth taking a look at the UK, where the National Health Service is considered to be at crisis point. After 70 years of universal healthcare, free at the point of delivery, this winter has seen thousands of non-emergency procedures cancelled, A&E units buckling under the strain, and acutely ill patients waiting in corridors and ambulances as hospitals report 100% bed capacity.

Not surprisingly, money is the main problem. Funding constraints in a period of austerity mean that the NHS is the midst of its toughest decade since its creation, according to the Institute for Fiscal Studies. NHS England’s chief executive Simon Stevens has pleaded with the government for at least an extra £4 billion for the NHS in 2018-19. He suggests that waiting lists for hospital operations could hit 5 million over the next two years, and that cancer and mental health care could suffer. If modern Britain were to look more like Germany, France or Sweden then it is underfunding its health services by £20-£30 billion a year, he maintains. While some extra funding was allocated by the Chancellor in the autumn 2017 budget, this is unlikely to make much of an inroad into the funding gap.

Apart from the demographic pressures and a particularly severe flu season, the main reasons for the crisis are: ‘bed blocking’ by those fit to leave hospital but not able to live in the community without social care, which is also underfunded; a primary care system that, having been hit by funding cutbacks over the past five years, cannot cope with increasing numbers of patients, who then seek help at A&E departments; staffing shortages – as demand has increased the supply of doctors and nurses has decreased mainly because there have not been the funds to train and recruit them.

There is not much pharma firms can do about any of that. Even so, amid the inevitable rationing of healthcare, drug costs will be a prime target for cost containment.


Pharma firms launching new medicines are already all too familiar with rationing. For several years now, companies have been under pressure to justify the price of new drugs, and a wide range of strategies have been adopted by payers trying to ensure that new products offer value for money. Companies usually have little choice but to comply with such attempts to control access to new medicines. At the same time they will go to great lengths to protect the ‘benchmark’ price of their new drugs. The most common approaches have tended to be rebates or discounts, or prices pushed down in reimbursement negotiations.

New Ways of Paying for Innovation

It now looks inevitable that new ways of paying for innovation will have to be adopted and there is already an increasing trend towards more complicated outcomes agreements and “commercial” arrangements.

Some significant moves in this direction are being made in the UK, which – in theory – is a free pricing market for new medicines. Companies already have to convince the National Institute for Health and Care Excellence (NICE) that their drugs are value for money before they can be prescribed for NHS patients. However, NICE does not negotiate prices with the companies. It looks at the data within its set parameters and basically decides whether the product is cost as well as clinically effective and its impact on the NHS budget. This usually prompts companies to discount prices.

Now, for some of the more expensive new drugs, NHS England is stepping in and negotiating directly with companies. NHSE as a body is hugely influential in setting the priorities and direction of the NHS in England, with responsibilities for commissioning health services and holding NHS organisations to account for spending NHS funds efficiently for patients and the taxpayer.

One recent example of NHSE intervention is an outcomes/risk-sharing pricing deal with the German firm Merck for its multiple sclerosis drug Mavenclad (cladribine). The NHS will only have to pay for the medication if a patient responds. Financial details of such deals are confidential but it is likely the NHS will also have secured a discount on the £2,000 per tablet list price.

Flemming Ornskov, chief executive of Shire, suggests that companies developing drugs for rare diseases will continue to move towards outcomes-based payment systems. “We are willing to follow patients for a long period of time and rethink what we should get as reimbursement based on outcome,” he told a recent FT global pharmaceutical and biotechnology conference in London.

Need for Real World Data

This of course will demand generation of outcomes data, which will not be straightforward as there are problems with data collection and the IT structure of the NHS. The burden is likely to fall on pharma companies, which will have to develop the technology to produce real world data. However, on the other hand, one benefit of such commercially-based agreements is that the drugs have a better chance of reaching the patient sooner.

Italy and the US

In Italy, managed-entry arrangements work in a similar way. Under a payment-by-results approach, the manufacturer must pay back the full amount paid for the medication for each patient who does not respond to treatment. Under risk-sharing deals, the manufacturer must pay back a proportion of the amount based on non-responders. In the US, under a recent innovative outcomes-based reimbursement agreement, the Centers for Medicare & Medicaid Services will pay Novartis for its novel cell therapy Kymriah for blood cancers only if patients respond after a month of treatment.

Do R&D Costs Justify High Prices?

These new arrangements are being adopted when drugs are ready for market. But companies will have to look further back in the process. It goes without saying that more efficient R&D strategies could help reduce the costs that companies blame for high prices. New technological tools are helping to streamline R&D, and faster regulatory processes for innovative life-saving medicines are reducing delays to market for new drugs. Is it not time therefore to challenge the view that high drug prices are needed to fund R&D for these medicines? Are companies still too fixated on the view that drug prices reflect what the market will bear? But those are questions for a future column...

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